Tuesday, 1 November 2011

Comment on Martin Wolf's Latest Column

Martin Wolf's Column offers his distinct mix of balanced insights and practical suggestions. But it fails in the important respect of understanding - or if that is presumptuous, of at least attempting to explain how the financial pyramid built on the credit/debt fault-line actually occurs, and then to examine how and why the credit/debt relationship can take place in the context of "capitalist growth" or "profitability".

Lapidarily put, if Mr. Wolf were right, capitalism would resemble a "zero-sum game" whereby an accounting "surplus" must be balanced by an accounting "deficit" in a destructive downward spiral until the "debtors" sink in a (Mediterranean) sea of debt to the "surplus" or "creditor" countries. But this fails to explain how "economic expansion" or "growth" is possible at all!

In other words, the question is: why could the "creditors" not lend instead to "borrowers" who were able to repay the "debt"? For there is the "arcanum" of capitalist "growth": it is the ability to find new "markets" where investments are "profitable"! These markets do not have to be on Mars, as Wolf suggests: there can always be hundreds of millions of willing "borrowers" and "debtors" in China, for instance - preferably under the compliant domination of a truculent dictatorship! And at that point we come closer to explaining the root of the problem: the decline of "profitability". And that is the point at which "economics becomes a concentrate of Politics".

Let us clarify some misunderstandings that have arisen most frequently in the course of the discussion. As we wrote below, Mr. Wolf correctly points out that capitalistic competition inevitably, by definition, creates "creditors" and "debtors" - because the aim of "competition" is "to destroy or wipe out the competition"! But competition has a divergent impact on capitalists and on workers: - because whilst it leads to the formation of "monopolies" or the concentration of capitals on the entrepreneurial side, at the same time it is an effective weapon against the demands of workers for better pay and conditions!

What Martin Wolf leaves out (again, understandably given space limitations) is the crucial fact that the "debts" of the European periphery were not incurred because Franco-German Finanzkapital wished to finance "purchases" by the PIIGS. Rather, these "loans" were extended for the simple reason that Finanzkapital could not find more reliable "profitable investments" anywhere they could see! In other words, the "financial crisis" was always due not at all to "financing trade" but rather to the need for finance capital to find sources - any sources - of profit, even those investments that "in the long run" could not foreseeably be repaid!

This is the point at which even superficially "productive" investments become as "speculative" as can be - because finance capital in the end will lend to those "borrowers" who are most foolishly willing to pay the highest interest yield! (This is called "adverse credit selection" in the ridiculous economese of our financial experts - just google Mishkin.) Again for further elucidations we invite friends to www.eforum21.com.